The Bitcoin (CRYPTO: BTC) price is down 7% over the past 24 hours.
The world's top token by market cap is currently trading for US$20,889 (AU$29,544).
Most all cryptos are deep in the red today.
This follows on from a heavy day of selling in US share markets yesterday (overnight Aussie time), with the tech-heavy Nasdaq closing down 4.1%. Cryptos have been trading in line with risk assets throughout the year, and have come under pressure amid fast rising interest rates.
Bitcoin is now down 56% since 1 January, and down 70% from its 10 November all-time highs.
With the latest selling, the Bitcoin price is coming uncomfortably close to the key level of US$19,500.
Or US$19,511, to be precise.
Why is US$19,511 a line in the sand for the Bitcoin price?
You likely recall that 2017 was a banner year for the Bitcoin price.
The token kicked off that year trading for US$1,020, and by mid-December it reached new records of US$19,511, a gain of more than 1,800%.
Prices retraced from there and it took until December 2020 before Bitcoin surpassed its previous record. And despite some wild volatility, it's stayed above that price ever since.
Vetle Lunde and Jaran Mellerud at Arcane Research point out that the Bitcoin price has never fallen below any of its prior cycle peaks during its entire 12 years of trading. Which is why they're keeping a sharp eye on the US$19,511 level.
"A potential visit below this level could lead to a lot of hodlers capitulating and a wind-down of leverage, making this a very important support level to pay attention to onwards," they said (courtesy of Bloomberg).
That's no typo, by the way. Hodlers, if you're unfamiliar, refers to long-term, devoted crypto holders.
They added that most of the open interest in Bitcoin options is based on a $20,000 strike price, "which can contribute to selling pressure in the spot market should the price fall below".
Where to next for the Bitcoin price?
With the entire crypto market under pressure, we're hearing more bearish forecasts for the medium-term Bitcoin price.
Bobby Lee, CEO of crypto storage provider Ballet Global Inc said:
I think we will test $20,000 and go to $19,000-$18,000. There are lot of funds, large borrowers of Bitcoin who have liquidation positions in $20,000 range.
Given that there is blood in the water and there are sharks swimming around there is going to be lot of incentive for people to trade it down to pass that point for the long holders who are on leverage to capitulate.
Adrian Przelozny, CEO of crypto exchange Independent Reserve, remains optimistic about the longer-term outlook for the Bitcoin price. But shorter-term, he sees some more pain ahead.
Przelozny said (quoted by Bloomberg), "There's a lot of Bitcoin pledged as collateral that might have to be sold if its price drops into the $15,000 to $20,000 range. But this is short-term pain. I am still very bullish longer term."
Silver linings ahead?
Josh Gilbert, Australia market analyst at multi asset trading platform eToro, noted that these kinds of big declines in the Bitcoin price are nothing new, though that won't make it any easier for investors.
According to Gilbert:
Since Bitcoin's inception, we have seen well over ten 50% corrections in the last decade. Although this is par for the course when investing in the asset, it does not make it any less painful. For many new investors, this will be the first significant crypto decline they have ever seen.
Looking ahead, Gilbert believes the current sell-off will leave cryptos better off in the long run.
"Despite major drawdowns across the crypto space, it is important to note that the development of crypto, its use cases, and the regulation of the industry is continuing regardless of the sell-off," he said.
"This essentially helps set the asset class up to be in a much stronger position for when crypto markets rebound."
